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The Two Major Classifications Of Loans

By Roseanne Blossoms

Asking for support is common. For a lot of us, it comes in the form of monetary assistance. Although some of us borrow lesser money than others, we still have to do so when we want to launch a business here in Singapore, to place a down payment on a house or vehicle, pay our children's tuition, or renovate our garage or the entire home. There are forms of loans. There are car loans, home loans, mortgages, personal loans, and payday loans just to mention a few. But whatever form they are, they are either secured or unsecured.

Secured, or collateral loans, are a category of loans that needs the borrower to give the lender a form of security or guarantee that he's capable of paying back on time. Lenders normally ask cars and real properties to be used as collateral. The lender keeps the rights to the items during the lending period until the borrower has repaid the loan amount completely.

Because of the collateral, secured loans normally have very low interest rates and are oftentimes flexible. The borrower's credit record also gives them a bargaining power. According to how good their credit record is, they can negotiate payment conditions for loans in Singapore to fit their paying capability.

However, the borrower could possibly remain in debt for a long time if they stretch the payment instalment time. It is best if they select a short payment plan that they can also afford. Another issue is, if they fail to make the payment, the lending company will confiscate their collateral, which means they can remove their vehicle or take possession of their property.

As for unsecured loans, which are also called non-collateral, borrowers are not required to produce properties as collateral for the loaned money. Banks or lending firms can just use collectors and freeze their accounts if they fail to pay. People who don't have a real property, vehicle, or any properties that are deemed significant to be used as collateral for the credit opt for this type of loan.

Since lending firms have more to lose if the borrower defaults on payment, their screening process for applicants for unsecured loans is strict. Individuals who have bad credit history aren't guaranteed that they can be approved for a loan. Unsecured loans also have considerably higher interest rates than secured loans in Singapore.